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PPI Turns Negative on Annualized Basis

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PPI DownPPI turned negative on an annualized basis, but there is more to the inflation story than oil. The stronger dollar is exerting downward pressure on core inflation. This is evidenced by the 0.6% decline in core annualized PPI to 1.0%. The downward pressures might abate just a bit as the pace of the dollar’s rise could slow temporarily. However, several other central banks responded to the ECB’s measures by easing as well. This could put the pressure on the ECB to ease even more aggressively. Japan is unlikely to standby and lets the EMU take market share in the U.S. and could ease again (buy more equities?). Can Japan ease more than it already has? If Japan is stuck (we believe it is close), Japan might win the race to the bottom. It did have a 20 year head start after all.

To see a list of high yielding CDs go here.

 This brings us to Europe. We view Europe as Japan Redux. Unless there are structural changes within the EMU, it could follow’s Japan’s path. Readers should keep in mind that benefits to Japanese and European risk assets are more technical and monetary than fundamental. Thus, corrections could occur should monetary stimulus underwhelm. Rather than piling into foreign markets, we suggest investors cautiously dipped their toes and only when it is suitable.

We have been asked by several readers about Petrobras (NYSE:PBR). The company is a mess. It is dealing with a corruption scandal and a plunge in oil prices. It is also dealing with a stronger dollar. Petrobras’s dollar-denominated debt has become more expensive as the USD has strengthened vs. the Brazilian real. If not for the fact that Petrobras is a national treasure for Brazil, we would probably have been more negative early on. However, we have been unconstructive on Brazil for more than a year.

Our advice for holders of Petrobras debt is that it is a speculative investment at the present time. Suitability has to be assessed for accounts holding the debt.

By Thomas Byrne Thomas Byrne brings 26 years of financial services experience to Wealth Strategies & Management LLC. He spent the last 23 years as Director of Taxable Fixed Income for Citigroup, Inc. and predecessor firms in New York, NY. During the course of his long fixed income career, Mr. Byrne was responsible for trading preferred stock, corporate bonds, mortgage backed securities, government debt, international debt and convertible bonds. Mr. Byrne was also responsible for marketing, sales, strategy and market commentary within the taxable fixed income markets.
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All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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Thomas Byrne

Thomas Byrne serves ad the Director of Fixed Income for Wealth Strategies Management LLC. Thomas brings 26 years of financial services experience to Wealth Strategies & Management LLC. He spent the last 23 years as Director of Taxable Fixed Income for Citigroup, Inc. and predecessor firms in New York, NY. During the course of his long fixed income career, Mr. Byrne was responsible for trading preferred stock, corporate bonds, mortgage backed securities, government debt, international debt and convertible bonds. Mr. Byrne was also responsible for marketing, sales, strategy and market commentary within the taxable fixed income markets. High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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